Prepaid Interest

AAA

DEFINITION of 'Prepaid Interest'

The interest that a debtor pays before the first scheduled debt repayment. For taxation purposes, most kinds of prepaid interest are expensed over the life of the loan.

For mortgage loans, prepaid interest can also be the interim interest that accrues from the settlement day to the beginning of the first mortgage period.

INVESTOPEDIA EXPLAINS 'Prepaid Interest'

Points, a kind of fee that mortgage lenders charge borrowers, are considered a type of prepaid interest. Similar to other types of prepaid interest, points are typically deducted over the life of the loan (in this case, a mortgage). However, provided that certain conditions are met, the IRS does allow this type of prepaid interest to be deducted in the year in which it is paid.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  3. Loan

    The act of giving money, property or other material goods to ...
  4. Points

    1. A 1% change in the face value of a bond or a debenture. 2. ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of ...
  6. Discount Points

    A type of prepaid interest mortgage borrowers can purchase that ...
Related Articles
  1. A Tax Primer For Homeowners
    Taxes

    A Tax Primer For Homeowners

  2. Mortgage Points: What's The Point?
    Credit & Loans

    Mortgage Points: What's The Point?

  3. Surviving The IRS Audit
    Taxes

    Surviving The IRS Audit

  4. Avoid Capital Gains Tax On Your Home ...
    Taxes

    Avoid Capital Gains Tax On Your Home ...

comments powered by Disqus
Hot Definitions
  1. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  2. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  3. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  4. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  5. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  6. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
Trading Center